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The global order is in entropy. Alliances are fraying. Borders are blurring. Uncertainty abounds. Consensus on how to manage the 21st century's most critical systemic threats — from cross-border migration flows to terrorism, from inequality to climate risks — remains elusive.
No wonder then that geopolitics is a top concern for American businesses. At the strategic level, executive leadership teams must chart a course through increasingly turbulent and unpredictable international waters. Lower down the organizational hierarchy, operational managers and other front-line personnel must contend with the local manifestations of that turbulence, negotiating a host of complex political, economic, social and cultural dynamics in the course of their day-to-day routines.
To enable strategic foresight and informed decision-making, more and more businesses are establishing internal geopolitical risk functions. Conceptually, the value proposition of an internal geopolitical risk capability is straightforward. By building an in-house team, businesses can develop institutional expertise and generate proprietary insights into the issues and geographies that matter most.
Yet how should this capability function, and how can an in-house team transition from "a good idea" to a reliable, integrated provider of actionable insights? From another vantage point, how can a geopolitical risk team create value, as opposed to becoming a cost center?
Each organization will have to design its own capability in line with internal dynamics such as geographic exposure, organizational structure, corporate culture and budgetary constraints. That said, three fundamental rules should guide any effort to establish (or enhance) an in-house geopolitical risk function.
1. Analytical Lens: Go Micro
The most basic methodological question in geopolitical risk analysis is deciding what questions to answer. Confronted with a complex and dynamic global environment, where do we start?
Conventional wisdom is to begin at the macro level, charting big-picture trends and headline risks. Analysis then gradually progresses downward, toward greater levels of granularity, exploring how these trends may create risks (or opportunities) for an organization.
This is a mistake.
Methodologically, it is a recipe for the production of broad, thematic reporting that may be "interesting" or "nice to know," but that does not speak to the immediate day-to-day decision-making processes of corporate leadership. Moreover, there is already a booming marketplace for this sort of thematic reporting from high-quality vendors (not to mention free content from think tanks and the media), which can be accessed at a price point that is far lower than the cost of sustaining an in-house team.
In-house geopolitical risk teams should start small, with a detailed examination of their organization's specific local exposure in the geographies where it operates.
Instead, in-house geopolitical risk teams should start small, with a detailed examination of their organization's specific local exposure in the geographies where it operates. A deep thematic understanding of a company's macrolevel risk exposure should be a prerequisite for employment on an in-house geopolitical risk team. The team must know "the big picture" cold on Day 1, and use this knowledge as a jumping-off point for granular, proprietary investigation. What is happening in the neighborhoods, towns and villages where we build, drill or explore? What is happening in the communities from which we recruit local workers, and in those that are affected by our operations? These are the first questions that an in-house team should answer. A foundation in local detail will hardwire a clear understanding of the facts on the ground (and the specific strategic and operational challenges that they create) into a geopolitical risk function's DNA.
Once this has been accomplished, all subsequent analysis will be anchored in granular, mission-specific knowledge. Analysts can then gradually widen their lens, expanding to broader strategic concerns — all the while, maintaining a clear understanding of what issues matter most (and why) and delivering actionable insights that speak to the concerns of corporate leadership at all levels.
2. Operational Process: Be Expeditionary
An in-house geopolitical risk team should be expeditionary and hands-on. If a team is desk-bound, it cannot take the pulse of front-line operations. It cannot develop an intuitive feel for ground truth or an understanding of how macrolevel risks resonate at the point of execution. Without that depth of insight, it is virtually impossible to generate focused, actionable reporting.
An expeditionary capability is more expensive than a sedentary analytical cell. It requires expenditure on travel and incurs safety and security challenges. However, "sedentary or expeditionary" is the wrong question to ask when considering investment in a geopolitical risk team. If the sorts of insights that can be provided by an office-based analyst are sufficient for your organization's needs, then your organization doesn't need an in-house capability. External vendors and subject matter experts can meet these requirements far more cost-effectively, with far broader and deeper coverage. Alternatively, however, if your organization needs a more granular, bespoke view of the world around you, then an expeditionary capability is the only way to meet that need.
3. Organizational Integration: Connect 'Ground Truth' to the Balance Sheet
The ultimate objective of an in-house geopolitical risk function is to provide forward-looking clarity on not just what is happening to and around a company's operations, but what these events mean vis-a-vis specific commercial interests. Why should C-Suite executives or operational decision-makers care about contextual political, economic or social considerations? How can a geopolitical risk team frame its inputs such that the "OK … so what?" question is preempted, and guidance is readily actioned?
This is where the foundation of granular, locally specific detail is the difference between an "interesting report" and a mission-critical insight. If a geopolitical risk team can connect its analysis of macrolevel contextual issues to its organization's day-to-day reality, it will immediately illuminate how the issues in question impact the bottom line.
The purpose of an in-house geopolitical risk team is not to generate reporting about Chinese foreign policy in Africa, or Iranian influence across the Middle East, or trends in narcoterrorism in Latin America. It is to concisely explain how and why these phenomena matter to corporate leadership, and what can be done in response. This can be readily achieved by a small, expeditionary team that roots its reporting in the ground truth, leveraging first-hand intuition to trace the analytical threads that connect geopolitical events to its organization's strategic, operational and financial realities.